Did Goldmanâ€™s Greg Smith Confess to Illegal Behavior?

In a scathing New York Times op-ed, Goldman Sachs executive Greg Smith announced that he was quitting his job after 12 years. You see, he only recently realized that the investment bank had lost its “spirit of humanity.” Ah yes, Goldman Sachs and the "spirit of humanity." This is the place where we are all supposed to vomit.

The Daily Beast’s Tunku Varadarajan asks: What?! “Did Smith just wake up from a fairyland?” Smith, you see, can no longer tolerate the moral turpitude that netted him at least $1 million a year for over ten years. So, with a cry from the heart, he must now cleanse himself to stay pure. He tells us that once upon a time Goldman Sachs, "wasn't just about making money." I do believe in fairy tales. I do, I do, I do! When he first got to Goldman it was all about integrity and humanitarianism you see. It’s about “humility” and not about “being promoted to a position of influence.” Mr. Smith is no Howard Beale. This is more like Darth Vader quits the Evil Empire.

He, of course, does not “know about any illegal behavior.” And congressional insider trading wasn’t “illegal” either was it. Heaven forbid ethics and law should merge. Screw the spirit of the law , just meet the letter. Dot the ‘i’ and cross the ‘t’. It disturbs him that the “muppets” are just another breed of sheep to fleece. After all integrity demands they have the integrity to fleece the sheep on behalf of the “muppets.” This is a distinction with a real difference to him.

Mr. Smith doesn’t know of any illegal behavior? Really? Let’s spend a bit of time on what are arguably written admissions of illegal behavior. It’s easy enough to vet that self-serving c/y/a statement. Smith admits that Goldman is a “toxic’ environment in which “Absolutely, every day, in fact. ... people push ... and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals.” He admits, in writing, to a corporate culture in which Goldman employees do not do right by right by their clients and that they put making money above that duty.

I can think of few more unequivocal admissions of “illegal behavior” and Smith’s breathtaking statements are published in the New York Times no less. But there is more; however, first understand the legal duties here. Greg Smith and Goldman-Sachs are not selling used cars. They are fiduciaries.

Like doctors and lawyers, investment bankers are fiduciaries and afiduciary dutyis the highest standard of care imposed by equity or law. Fiduciaries are required to be extremely loyal to the ‘muppets’ the law calls their "principals" and they are not allowed to put their personal interests before that duty. Aside from law, equity (not like financial ‘equity’ in your home) also requires a stricter standard of behavior than tort law. Goldman, like all fiduciaries, has a duty not to be in a situation where personal interests and fiduciary duty conflict, or where their fiduciary duty conflicts with another fiduciary duty, and they have a duty not to profit from their fiduciary position without knowledge and consent of the not-fully informed ‘muppet’ who might not make the investment if he knew all the hustling pitchman knew. There should be no undisclosed conflict of interest. Fiduciaries must conduct themselves "at a level higher than that trodden by the crowd" and they are held to an overriding obligation of undivided loyalty. While precedents may be in conflict the fiduciary duty itself mandates that all such questions be resolved in the ‘muppets’ best interest not the hustler’s.

Understand, all this is precisely why hedge fund managers are exempt from certain disclosure requirements and held to lesser legal standards of care. Since they are dealing huge individual investments it's presumed their investors s are far more sophisticated— or so the argument goes. But we are not talking about hedge funds here.

As I said, it gets worse. Smith further admits the Goldman practice of "persuading ... clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit” and then he writes, “Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them.” Whoa baby! Wait a minute! What an admission! Open mouth. Insert foot. Pull trigger. It seems to me that he didn’t just shoot himself in the foot but put his foot in his mouth before he pulled the trigger. Selling clients a product that is “wrong for them” and admittedly “not seen as having a lot of potential profit,” taken together with Mr. Smith’s other statements, is not a trivial matter of not being old fashioned but arguably written admission of an ongoing pattern and practice of breaching fiduciary duties. Is this not the very definition of “illegal behavior”?

It is precisely because Goldman employees are pushing, peddling and hustling complicated investments to clients who don’t sufficiently understand them the law imposes a far more stringent a duty. They are not selling used cars. In a fiduciary relationship, the ‘muppet’ is in a position of vulnerability and justifiably vests confidence, good faith, reliance and trust in Goldman employees whose duty it is to aid, advise, and protect the principal cynically and disgustingly referred to as a mere ‘muppet.’ In such a relation good conscience requires the fiduciary to act at all times for the sole benefit and interest of the trusting and presumptively gullible ‘muppet.’

But Greg Smith admits he looks around and sees virtually no trace of that culture at Goldman Sachs. Integrity is admittedly eroding and he doesn’t know of any illegal behavior? Please. Pardon me but he arguably just admitted the contrary “in fact”. He did so in writing and he published those admissions in the New York Times. So why is Greg Smith not arrested and prosecuted for the “illegal behavior” his published complaint arguably admits to? I like Greg Smith’s face but I’m not sure which one to believe. It seems to me that this last hustle is actually a written confession.

Smith pleads for us to treat him equitably as he washes his hands like a Wall Street Pontius Pilate; but those who seek equity must do equity. It seems to me that Mr. Smith pleads with unclean hands perhaps made filthy by sharing in the profits of alleged fraud and deceit during his tenure at The Great American Bubble Machine. Come on. Does he really think we fleeced sheep are so gullible as to buy this self-serving bill of goods too? Really? This is his contribution? One last hustle to peddle just for old times sake? Integrity? What, the disingenuous Rip van Winkle just woke up from his lavish slumber to realize how ill-gotten his decades of gains might be? Bad enough talk is this cheap but he wants a pat on the back to boot.

Come on. He’s no scrape-and-claw grunt! But a Goldman Sachs executive. As Morris Berman points out in his bone-chilling diagnosis , at the center of the American character lies a “penchant for hustling.” American English contains no less that two hundred nouns and verbs referring to a swindle. We are a nation of scrabblers and speculators. Everyone has got an angle. But beneath it is a “sordid reality” of a “ubiquitous sleeze that won’t go away. This is a way of life with very high costs.”

The seeds of this nations “hustler culture” were sown from the very beginning and the rules that enabled the country’s expansion have become instruments of our demise. Hustling, materialism, and the pursuit for personal gain without regard for its effects on others have been powerful forces in American culture since the first Pilgrims landed. In a letter to Ernest de Chambrol, June 9, 1831, Alexis de Tocqueville wrote,

As one digs deeper into the national character of the Americans, one sees that they have sought the value of everything in this world only in the answer to this single question: how much money will it bring in?

America, wrote Richard Hofstadter in The American Political Tradition, is a “democracy of cupidity.” The classical republican ideal of republicanism meant subordination of private interest for public good, that free men realized their human potential in service to the commonwealth. The tradition of noblesse oblige. That ideal has been smashed on the rock of selfish individualism. The pursuit of naked self-interest is our social glue. As Berman reveals it, the manipulations of Goldman Sachs and others are the logical endpoint of the hustler culture. That Goldman and their ilk thrive in the wake of the disaster they wrought only proves that it’s really too late: America is incapable of changing direction.

Do you think this ‘honorable man’ will walk his talk and demonstrate ‘good faith’ by disgorging himself of any share in ill-gotten gains that brought so much suffering to so many millions? What’s that you say? No? Aha. Just as I thought.

Perhaps the Wall Street bronze should not be a charging bull but a sated pig wallowing in a trough. After all, Wall Street was named for the wall built to keep the pigs out. On Manhattan Island, a long solid wall was constructed on the northern edge of the colony to control roaming herds of pigs. This area is now known as Wall Street. Unfortunately it now protects the pigs from those who might wish to occupy the space against porcine invaders. What a reversal. But let’s not malign the poor pig which has already suffered too much hatred. To paraphrase the late Christopher Hitchens in "It's Everybody's Trough in Wonderland Pork,"

"The more one reflects on the nature of the national trough and its imagery, the more one wants to spring to the defense of the maligned pig ... Pigs have a fine ratio of brain-to-body weight, almost the equal of dolphins. They do, if left to themselves, know how to keep clean. They possess many intelligent and humorous faculties. Can the same be a said of, say, [Goldman Sachs investment bankers]? I rest my case."

Frankly, though I do admire his courage (or is it just a self-serving egotistical drama-queen exit?), after 12 years of sopping at the corporate trough I don’t think Mr. Smith can tell on Goldman Sachs without also telling on himself. All of a sudden, after he gets his 12 years of glut, he’s sick and tired of it and he’s not going to take it any more. Sorry but Mr. Smith is playing the world’s smallest violin.